EXHIBIT 99.1
PRG-Schultz Reports First Quarter 2005 Financial Results; Pre-Tax Results From
Continuing Operations Improve 16%
ATLANTA--(BUSINESS WIRE)--May 4, 2005--PRG-Schultz International, Inc.
(Nasdaq:PRGX) today announced financial results for the first quarter of 2005,
and provided outlook for the second quarter 2005 and the full-year 2005.
First Quarter 2005 Highlights
-- Revenues totaled $76.5 million
-- Revenues from Accounts Payable Services totaled $66.3
million
-- Revenues from Meridian VAT Reclaim totaled $10.2 million
-- Loss before tax from continuing operations was ($4.4) million,
compared to ($5.3) million in the first quarter of 2004
-- The Company recorded tax expense of $700,000 in the first
quarter, which reflects accruals on international operations
-- Diluted loss per share from continuing operations was ($0.08)
for the quarter compared with diluted loss per share from
continuing operations of ($0.05) during the first quarter of
2004
-- Included in the results from continuing operations was a
($0.03) per share effect of the following:
-- $950,000 of costs relating to the Company's strategic cost
reduction initiatives
-- $590,000 of costs for professional fees to complete the
2004 financial statement audit and Sarbanes-Oxley
compliance
-- $196,000 of costs relating to the Company's analysis of
strategic alternatives
-- Cost of revenue was 65.8% of revenues as compared to 65.7% in
the first quarter of 2004. U.S. cost of revenue was 61.6% of
U.S. revenues, as compared to 61.9% in the first quarter of
2004. (See attached Schedule 6 for a reconciliation of total
revenues and cost of revenues)
-- Net earnings (loss) was (6.4%) of revenues for the quarter,
compared to 5.5% a year ago. First quarter of 2004 included a
gain of $8.3 million (9.5% of revenue) from the sale of the
Company's Communications Services Operations.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) was 1.9% of revenues for the quarter, compared to
0.9% a year ago (see Schedule 5 for a reconciliation of net
earnings (loss) to EBITDA, a non-GAAP financial measure)
-- 67 new international clients were signed in the first quarter
John Cook, Chairman and Chief Executive Officer of PRG-Schultz stated, "Despite
the fact that, as we expected, revenues for the first quarter of 2005 were lower
than revenue in the first quarter of 2004, we are pleased that earnings before
tax from continuing operations in the first quarter improved 16%, due to our
continued success at reducing costs."
"As previously announced on March 29, 2005, the Centers for Medicare & Medicaid
Services (CMS), the federal agency that administers the Medicare program,
awarded PRG-Schultz a contract to provide recovery audit services for the State
of California's Medicare spending. We are very excited about this contract as it
represents the single largest opportunity this Company has ever had. This
contract award solidifies PRG's presence in the growing healthcare recovery
audit sector, expands the work we do with the Federal Government and positions
us for further participation in this major initiative. We anticipate this
program will begin contributing to revenues in the third quarter of 2005."
First Quarter 2005 Financial Results
Revenues for the first quarter of 2005 totaled $76.5 million, compared to $87.6
million in the first quarter of 2004. Revenues from Accounts Payable Services
totaled $66.3 million for the quarter compared to $79.1 million a year ago.
Revenues from the Company's U.S. Accounts Payable Services operations were $40.7
million, compared to $51.1 million in the first quarter of 2004. Revenues from
the Company's International Accounts Payable service operations were $25.6
million, a reduction of 9% compared to the first quarter of 2004, due primarily
to lower revenues in the Company's UK operations. Revenues from Meridian VAT
Reclaim for the first quarter of 2005 were $10.2 million, compared to $8.6
million a year ago, reflecting an improvement of 19% year-over-year.
Cost of revenue was $50.4 million, or 65.8% of revenues for the first quarter of
2005, compared to $57.6 million, or 65.7% of revenues in the same period last
year.
Net loss for the first quarter of 2005 was ($4.9) million, or ($0.08) per share,
compared to net earnings of $4.8 million, or $0.08 per share in the 2004 period.
The Company recorded tax expense of $700,000 for the quarter, which reflects
accruals on international operations, and no U.S. tax credit was provided,
although the Company expects to be able to utilize these losses against future
earnings on its tax return. Net loss from continuing operations for the first
quarter of 2005 was ($5.1) million, or ($0.08) per diluted share, compared to a
net loss of ($3.3) million, or ($0.05) per diluted share, during the first
quarter of 2004. The prior year period included an after-tax gain of $8.3
million, or $0.13 per diluted share, on the sale of the Company's Communications
Services Operations, which was sold on January 16, 2004.
Results in the first quarter of 2005 included charges of $950,000 relating to
previously disclosed strategic cost reduction initiatives, $590,000 of costs for
professional fees to complete the 2004 financial statement audit and
Sarbanes-Oxley compliance, and $196,000 of costs relating to the Company's
analysis of strategic alternatives.
EBITDA for the first quarter of 2005 totaled $1.4 million, or 1.9% of revenues,
compared to $0.8 million, or 0.9% of revenues, in the first quarter of 2004.
(See Schedule 5 for a reconciliation of net earnings (loss) to EBITDA, a
non-GAAP financial measure).
Schedule 4 provides summary financial results from continuing operations for the
first quarters of 2005 and 2004 by operating segment.
Cash Flow, DSOs and Capital Expenditures
Net cash used in operating activities for the first quarter of 2005 was ($2.7)
million, compared to cash provided by operating activities of $5.4 million in
the first quarter of 2004. Higher EBITDA was offset by two factors at Meridian:
lower deferred revenue balances and the fact that the reduction of restricted
cash in the prior year period did not recur.
Company-wide, Days Sales Outstanding (DSOs) at the end of the first quarter of
2005 stood at 52 days, compared to 55 days a year ago.
Capital expenditures totaled approximately $1.9 million for the first quarter of
2005, compared to $4.1 million in the same period a year ago.
Preliminary Settlement in Class Action Lawsuit
As previously announced on February 8, 2005, the Company entered into a
Stipulation of Settlement of the shareholder lawsuit (most recently disclosed on
Form 10-K on March 16, 2005). On February 10, 2005, the United States District
Court for the Northern District of Georgia, Atlanta Division, preliminarily
approved the terms of the Settlement and, if approved by the Court, is not
expected to require any further financial contribution by the Company. The Court
will hold a final approval hearing on May 25, 2005. Final settlement of the
consolidated class action is subject to final approval by the Court.
Discontinued Operations
Results from Discontinued Operations for the quarter ended March 31, 2005 were a
gain of $0.2 million, or $0.00 per share, compared to a gain of $8.1 million, or
$0.13 per share, in the year earlier period. The 2005 gain relates to royalties
from the sale of the Logistics Management Services business. The 2004 gain
primarily represents the after-tax gain on the sale of the Communications
Services Operations.
Sarbanes-Oxley Compliance Update
On April 6, 2005 PRG-Schultz disclosed in an SEC filing that management, with
the oversight of the Audit Committee of the Board of Directors, had completed
its evaluation of the effectiveness of the Company's disclosure controls and
procedures, under Section 404 of the Sarbanes-Oxley Act of 2002. Based upon that
evaluation, the Company identified material weaknesses in its internal control
over financial reporting relating to revenue recognition and income taxes. The
Company has begun to implement steps to address these issues and believes these
new policies and procedures, once fully implemented, will be effective in
remediating these material weaknesses.
Outlook for the Second Quarter of 2005
For the second quarter of 2005, we expect consolidated revenues to be up 10% to
15% over the first quarter of 2005 and flat to down slightly from the second
quarter of 2004. Revenues in the Company's Accounts Payable Services operations
are expected to be flat to down slightly compared to second quarter of 2004.
Revenues are expected to be impacted by an 8% to 10% decrease in Meridian
revenues in the second quarter of 2005 versus the second quarter of 2004,
following a 19% improvement in the first quarter of 2005.
Net earnings for the second quarter of 2005 are expected to be $0.02 to $0.03
per share, compared to a net loss of ($0.03) per share in the second quarter of
2004, which included a loss of ($0.02) from discontinued operations. EBITDA for
the second quarter of 2005 is expected to approximately double that achieved in
the second quarter of 2004, once again reflecting the benefits of the Company's
strategic cost reduction initiatives. Depreciation and amortization expenses and
interest expense are expected to be approximately the same as the second quarter
of 2004, and tax expense will be approximately $2 million higher, due to higher
earnings.
Outlook for the Full-Year 2005
The Company reiterates its previous full-year guidance. Consolidated revenues
for the full-year 2005 are expected to increase in the mid-single digit range
over full-year 2004 results. The Company noted that it expects a substantial
improvement in earnings in 2005, as compared to 2004 results, due to growth in
international operations and in new claims categories in the U.S., as well as
expected significant reductions in cost of revenue, and an expected reduction of
its effective tax rate as a result of the deferred tax impairment taken during
the fourth quarter of 2004. The Company expects EBITDA to improve substantially
in 2005, essentially due to the aforementioned reasons. The costs related to
these strategic initiatives are expected to be approximately $9 million less in
2005 than in 2004. 2005 results will not be as burdened by the non-operating
costs incurred during the fourth quarter, and will be improved by the annualized
impact of the cost reductions achieved during 2004; the improvement attributable
to these combined items is expected to be approximately $5-6 million in 2005.
Depreciation expense, interest expense and capital expenditures are expected to
be approximately $1 million less in 2005 than 2004. Despite the tax rate
recorded in the first quarter of the year, the Company expects its effective tax
rate to be approximately 10% for the full-year 2005.
Evaluation of Strategic Alternatives Update
As previously discussed, PRG-Schultz's Board of Directors is currently exploring
the Company's strategic alternatives and determining the course of action that
is in the best interests of the Company and its shareholders. The Company noted
that the Board's process is actively ongoing and that no decision with respect
to any specific alternative has been reached. On February 8, 2005, at a
regularly scheduled meeting of the Board of Directors, the Board created a new
special committee of the independent directors for the purpose of analyzing the
Company's strategic alternatives and to evaluate and approve such potential
alternatives. The Board, together with its financial advisor, CIBC World Markets
Corp., continues to evaluate the Company's strategic options, which include
among other things a possible sale, and has met with a number of interested
parties. The Company noted that there can be no assurance that any transaction
or other corporate action will result from this effort.
Conference Call and Webcast Information
PRG-Schultz will hold a conference call today, May 4, 2005, at 10:00 a.m. ET.
Listeners in the U.S. and Canada should dial 888-396-0289 at least 5-10 minutes
prior to the start of the conference. Listeners outside the U.S. or Canada
should dial 773-799-3995. To be admitted to the call, verbally supply the
passcode 'PRGX.' A playback of the call will be available one hour after the
conclusion of the live call, extending until midnight on May 18, 2005. To
directly access the replay, dial 866-417-5767 (US / Canadian participants) or
203-369-0735 (international participants).
The live teleconference will also be audiocast on the Internet at www.prgx.com
(go to the Investor Relations home page). Please note that the audiocast is
'listen-only.' Microsoft Windows Media Player is required to access the
audiocast and can be downloaded from www.microsoft.com/windows/mediaplayer.
A copy of this press release is also available at www.prgx.com under the heading
"Investor Relations -- News."
About PRG-Schultz International, Inc.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG-Schultz) is the
world's leading profit improvement firm. PRG-Schultz employs approximately 2,800
employees, providing clients in over 40 countries with insightful value to
optimize and expertly manage their business transactions. Using proprietary
software and expert audit methodologies, PRG-Schultz industry specialists review
client invoices, purchase orders, receiving documents, databases, and
correspondence files to recover lost profits due to overpayments or
under-deductions.
Forward Looking Statements
Statements made in this news release that look forward in time, including
statements regarding expected 2005 performance, involve risks and uncertainties
and are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such risks and uncertainties include the
following: (i) until the Board has completed the process of exploring strategic
alternatives, the Company will incur additional expense, and management's time
and attention could be diverted from the operation of the business, (ii) we have
violated our debt covenants in the past and may inadvertently do so in the
future, which could result in an acceleration of our outstanding debt, (iii) the
potential bankruptcy of any of our larger clients could adversely affect our
operations and liquidity, (iv) a representative of a former client currently in
bankruptcy has demanded repayment of the $5.5 million received from a bankrupt
client during the quarter ended March 31, 2003; these payments may be
recoverable as "preference payments" under United States bankruptcy laws, (v)
proposed legislative and regulatory initiatives with respect to European value
added taxation could reduce material portions of the revenues of Meridian VAT
Reclaim, (vi) our Accounts Payable Services businesses may not grow as expected,
and we may not be able to increase the number of clients, particularly
commercial clients, utilizing contract compliance audits, (vii) our
international expansion may take longer to accomplish or may be more expensive
than we anticipate, (viii) in the Company's pending shareholder derivative
litigation, a preliminary settlement between the parties which has been accepted
by the judge in the case, may not receive final court approval due to
shareholder objections or opt outs or for other reasons beyond the Company's
control, (ix) future weakness in the currencies of countries in which we
transact business could adversely affect the profitability of our international
operations, (x) our new service providing management of credit card signature
receipts may not provide expected revenues, and other risk factors discussed in
our Securities and Exchange Commission filings, including the Company's Form
10-K as filed with the Securities and Exchange Commission on March 16, 2005.
With respect to statements regarding the Company's recent government Medicare
contract, we will be required to expend substantial resources to prepare for and
perform the Centers for Medicare & Medicaid Services (CMS) audit and there is no
guaranty that actual revenues will justify the required expenditures; until the
CMS pilot program is well underway, there will be no way to accurately predict
the level of recoveries that will be achieved, and there is no guaranty that the
level of recoveries will be significant; even if CMS deems the pilot program
sufficiently successful to justify further ventures, there is no guaranty that
it, or any other medical claims client, will award future contracts to the
Company. The Company disclaims any obligation or duty to update or modify these
forward-looking statements.
SCHEDULE 1
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Three Months
Ended March 31,
-----------------
2005 2004
-------- --------
Revenues $76,522 $87,649
Cost of revenues 50,354 57,629
Selling, general and administrative expenses 28,786 33,206
-------- --------
Operating loss (2,618) (3,186)
Interest (expense) (1,927) (2,277)
Interest income 117 181
-------- --------
Loss from continuing operations before income
taxes and discontinued operations (4,428) (5,282)
Income tax expense (benefit) 687 (2,007)
-------- --------
Loss from continuing operations before
discontinued operations (5,115) (3,275)
Discontinued operations:
Gain on disposal of discontinued operations
including operating results for phase-out period,
net of income taxes 219 8,122
-------- --------
Net earnings (loss) $(4,896) $4,847
======== ========
Basic earnings (loss) per share:
Loss from continuing operations before
discontinued operations $(0.08) $(0.05)
Discontinued operations - 0.13
-------- --------
Net earnings (loss) $(0.08) $0.08
======== ========
Diluted earnings (loss) per share:
Loss from continuing operations before
discontinued operations $(0.08) $(0.05)
Discontinued operations - 0.13
-------- --------
Net earnings (loss) $(0.08) $0.08
======== ========
Weighted average shares outstanding:
Basic 61,976 61,693
======== ========
Diluted 61,976 61,693
======== ========
SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
March 31, December 31,
2005 2004
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $14,617 $12,596
Restricted cash 145 120
Receivables:
Contract receivables 44,515 57,514
Employee advances and miscellaneous
receivables 3,658 3,490
------------ ------------
Total receivables 48,173 61,004
------------ ------------
Funds held for client obligations 26,985 30,920
Prepaid expenses and other current assets 5,629 4,129
Deferred income taxes 1,951 1,951
------------ ------------
Total current assets 97,500 110,720
Property and equipment 24,496 26,473
Goodwill 170,667 170,684
Intangible assets 29,885 30,232
Other assets 3,706 3,827
------------ ------------
Total assets $326,254 $341,936
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligation for client payables $26,985 $30,920
Accounts payable and accrued expenses 20,897 24,395
Accrued payroll and related expenses 34,518 41,791
Deferred revenue 4,343 6,466
------------ ------------
Total current liabilities 86,743 103,572
Long-term bank debt 6,300 -
Convertible notes, net of unamortized
discount of $1,631 in 2005 and $1,714 in
2004 123,369 123,286
Deferred compensation 1,378 2,195
Deferred income taxes 4,201 4,201
Other long-term liabilities 4,805 5,098
------------ ------------
Total liabilities 226,796 238,352
------------ ------------
Shareholders' equity:
Preferred stock - -
Common stock 68 68
Additional paid-in capital 495,526 493,532
Accumulated deficit (347,875) (342,979)
Accumulated other comprehensive income 1,748 1,740
Less treasury stock at cost (48,710) (48,710)
Unearned portion of restricted stock (1,299) (67)
------------ ------------
Total shareholders' equity 99,458 103,584
------------ ------------
Total liabilities and shareholders'
equity $326,254 $341,936
============ ============
SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Three Months
Ended March 31,
-----------------
2005 2004
-------- --------
Cash flows from operating activities:
Net earnings (loss) $(4,896) $4,847
Gain on disposal of discontinued operations (219) (8,122)
-------- --------
Loss from continuing operations (5,115) (3,275)
Adjustments to reconcile loss from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,227 4,431
Restricted stock compensation expense 69 (25)
(Gain) Loss on sale of property and equipment (3) 21
Deferred income taxes - (3,286)
Income tax benefit relating to stock option
exercises 1 -
Changes in operating assets and liabilities:
Restricted cash securing letter of credit
obligation (27) 5,463
Receivables 12,416 870
Prepaid expenses and other current assets (1,535) (41)
Other assets (237) (17)
Accounts payable and accrued expenses (2,618) (1,206)
Accrued payroll and related expenses (6,808) 1,312
Deferred revenue (1,910) 1,794
Deferred compensation expense (817) (464)
Other long-term liabilities (293) (199)
-------- --------
Net cash provided by (used in) operating
activities (2,650) 5,378
-------- --------
Cash flows from investing activities:
Purchase of property and equipment, net of sale
proceeds (1,906) (4,141)
Proceeds from sale of discontinued operations - 19,116
-------- --------
Net cash provided by (used in) investing
activities (1,906) 14,975
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) of debt 6,300 (25,100)
Net proceeds from common stock issuances 692 223
-------- --------
Net cash provided by (used in) financing
activities 6,992 (24,877)
-------- --------
Net cash provided by (used in) discontinued
operations 234 (1,391)
Effect of exchange rate changes on cash and cash
equivalents (649) (634)
-------- --------
Net change in cash and cash equivalents 2,021 (6,549)
Cash and cash equivalents at beginning of period 12,596 26,658
-------- --------
Cash and cash equivalents at end of period $14,617 $20,109
======== ========
SCHEDULE 4
PRG-Schultz International, Inc. and Subsidiaries
Summary Operating Segment Results from Continuing Operations
(Unaudited)
Three Months Ended March 31,
(Amounts in thousands, except per share data)
---------------- ----------------
2005 2004
---------------- ----------------
$ % Rev. $ % Rev.
- ------------------------------------ ---------------- ----------------
Accounts Payable Services
- -------------------------
Revenues $66,301 $79,079
Operating income $4,828 7.3% $10,271 13.0%
- ------------------------------------ ---------------- ----------------
Meridian VAT Reclaim
- --------------------
Revenues $10,221 $8,570
Operating income $2,686 26.3% $772 9.0%
- ------------------------------------ ---------------- ----------------
Corporate Support
- -----------------
Operating loss ($10,132) -13.2% ($14,229) -16.2%
- ------------------------------------ ---------------- ----------------
Total
- -----
Revenues $76,522 $87,649
Operating loss ($2,618) -3.4% ($3,186) -3.6%
Loss from continuing operations ($5,115) -6.7% ($3,275) -3.7%
Diluted loss per share from
continuing operations $(0.08) $(0.05)
Diluted shares 61,976 61,693
- ------------------------------------ ---------------- ----------------
Notes:
Corporate Support Operating Loss % shown as a % of Total Revenues
Loss from Continuing Operations and Diluted Loss Per Share from
Continuing Operations are prior to Earnings from Discontinued
Operations.
SCHEDULE 5
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) to EBITDA
(Amounts in thousands)
(Unaudited)
Three Months
Ended March 31,
-----------------
2005 2004
-------- --------
Reconciliation of net loss to EBITDA:
- -------------------------------------
Net earnings (loss) $(4,896) $4,847
Adjust for:
Earnings from discontinued operations 219 8,122
-------- --------
Loss from continuing operations (5,115) (3,275)
Adjust for:
Income taxes 687 (2,007)
Interest 1,810 2,096
Depreciation and amortization 4,059 3,973
-------- --------
EBITDA $1,441 $787
======== ========
Total revenues $76,522 $87,649
EBITDA as % of Revenues 1.9% 0.9%
In this press release, the Company has provided a financial measure,
EBITDA, defined as earnings from continuing operations before taxes,
interest, depreciation and amortization disclosed herein. EBITDA is
considered a 'non-GAAP' financial measure within the meaning of
Regulation G and may not be similar to EBITDA measures employed by
other companies. EBITDA is presented solely as a supplemental
disclosure because management believes it to be an effective measure
of the operating performance of the Company's core business
activities. EBITDA is not provided as a measure of liquidity and
should not be viewed as such. EBITDA should not be considered in
isolation of, or as a substitute for, other measures for determining
operating performance that are calculated in accordance with GAAP.
This schedule provides a reconciliation of net loss to EBITDA in
accordance with Securities and Exchange Commission guidance.
SCHEDULE 6
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Total Revenues and Cost of Revenues
(Amounts in thousands)
(Unaudited)
Three Months
Ended March 31,
-----------------
2005 2004
-------- --------
Revenues:
U.S. Accounts Payable Services $40,704 $51,085
International Accounts Payable Services 25,597 27,994
Meridian VAT Reclaim 10,221 8,570
-------- --------
Total revenues $76,522 $87,649
======== ========
Cost of revenues:
U.S. Accounts Payable Services $25,059 $31,625
International Accounts Payable Services 19,027 20,239
Meridian VAT Reclaim 6,268 5,765
-------- --------
Total cost of revenues $50,354 $57,629
======== ========
Cost of revenues as a percentage of revenue:
U.S. Accounts Payable Services 61.6% 61.9%
International Accounts Payable Services 74.3% 72.3%
Meridian VAT Reclaim 61.3% 67.3%
-------- --------
Total cost of revenues as a percentage of revenue 65.8% 65.7%
======== ========
CONTACT: PRG-Schultz International, Inc.
James E. Moylan, Jr., 770-779-6605
SOURCE: PRG-Schultz International, Inc.